The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Phillips Edison Grocery Center REIT II, Inc.
Third Quarter 2016 Results
www.grocerycenterREIT2.com
DST: 888.518.8073
Griffin Capital Securities: 866.788.8614
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Agenda
• Portfolio & Results
• Other Updates
R. Mark Addy - President and COO
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Forward Looking Statements
This presentation and the corresponding call may contain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not
limited to, statements related to the Company’s expectations regarding the performance of its business, its financial
results, its liquidity and capital resources, the quality of the Company’s portfolio of grocery anchored shopping centers and
other non-historical statements. You can identify these forward-looking statements by the use of words such as “outlook,”
“believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “projects,” “predicts,”
“intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such
forward-looking statements are subject to various risks and uncertainties, such as the risks that retail conditions may
adversely affect our base rent and, subsequently, our income, and that our properties consist primarily of retail properties
and our performance, therefore, is linked to the market for retail space generally, as well as other risks described under
the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2015,
and the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, as such factors may be
updated from time to time in the Company’s periodic filings with the SEC, which are accessible on the SEC’s website at
www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ
materially from those indicated in these statements. These factors should not be construed as exhaustive and should be
read in conjunction with the other cautionary statements that are included in this presentation, the corresponding call and
in the Company’s filings with the SEC. The Company undertakes no obligation to publicly update or revise any forward-
looking statement, whether as a result of new information, future events, or otherwise.
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Q3 2016 Portfolio Highlights
• 70 properties
• 21 states
• 22 leading grocery anchors
• 8.7 million square feet
• 95.3% occupied
• 77.9% of rents from grocery, national
and regional tenants
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Q3 2016 Portfolio Highlights
Grocer % of ABR # ofLocations
Publix 6.6% 15
Albertsons-Safeway 5.9% 10
Walmart 5.5% 6
Ahold Delhaize 3.9% 4
Kroger 3.1% 8
Top 5 Grocers by Annualized Base Rent
Annualized Base Rent by Tenant Type Annualized Base Rent by Tenant Industry
We calculate annualized base rent as monthly contractual rent as of September 30, 2016 multiplied by 12 months.
Grocery
38.4%
National and
Regional
39.5%
Local
22.1%
Grocery
38.4%
Retail
Stores
23.5%
Services
23.5%
Restaurant
14.6%
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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• Debt to Total Enterprise Value: 28.4%1
• Weighted-Average Interest Rate: 2.8%
• Weighted-Average Years to Maturity: 3.3
Debt Profile as of September 30, 2016
1Debt to total enterprise value is calculated as net debt (total debt, excluding below-market debt adjustments and deferred financing costs, less cash and
cash equivalents) as a percentage of enterprise value (equity value, calculated as total common shares outstanding multiplied by the estimated value per
share of $22.50, plus net debt).
2Debt balances as of 9/30/2016.
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Company Updates
• Declared estimated net asset value per share of $22.50 as of
March 31, 2016*
• Partnered with Griffin Capital Corporation
* Please note that the estimated value per share is not intended to represent an enterprise or liquidation value of our company. It is important to
remember that the estimated value per share may not reflect the amount you would obtain if you were to sell your shares or if we liquidated our assets.
Further, the estimated NAV per share is as of a moment in time, and the value of our shares and assets may change over time as a result of several
factors including, but not limited to, future acquisitions or dispositions, other developments related to individual assets, and changes in the real estate
and capital markets, and we do not undertake to update the estimated NAV per share to account for any such events. You should not rely on the
estimated NAV per share as being an accurate measure of the then-current value of your shares in making a decision to buy or sell your shares,
including whether to participate in our dividend reinvestment plan or our share repurchase program. For a description of the methodology and
assumptions used to determine the estimated NAV per share, see Current Report on Form 8-K that we filed with the U.S. Securities and Exchange
Commission on April 15, 2016.
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Appendix
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Reconciliation of Non-GAAP Financials
Funds from Operations, Adjusted Funds from Operations, and Modified Funds from Operations
Funds from operations (“FFO”) is a non-GAAP performance financial measure that is widely recognized as a measure of REIT operating performance. We use FFO as
defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be net income (loss), computed in accordance with GAAP excluding extraordinary
items, as defined by GAAP, and gains (or losses) from sales of depreciable real estate property (including deemed sales and settlements of pre-existing relationships),
plus depreciation and amortization on real estate assets and impairment charges, and after related adjustments for unconsolidated partnerships, joint ventures and
noncontrolling interests. We believe that FFO is helpful to our investors and our management as a measure of operating performance because it, when compared year to
year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and
interest costs, which are not immediately apparent from net income.
Since the definition of FFO was promulgated by NAREIT, GAAP has expanded to include several new accounting pronouncements, such that management and many
investors and analysts have considered the presentation of FFO alone to be insufficient. Accordingly, in addition to FFO, we use modified funds from operations
(“MFFO”), which excludes from FFO the following items:
• acquisition fees and expenses;
• straight-line rent amounts, both income and expense;
• amortization of above- or below-market intangible lease assets and liabilities;
• amortization of discounts and premiums on debt investments;
• gains or losses from the early extinguishment of debt;
• gains or losses on the extinguishment of derivatives, except where the trading of such instruments is a fundamental attribute of our operations;
• gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting;
• gains or losses related to consolidation from, or deconsolidation to, equity accounting;
• gains or losses related to contingent purchase price adjustments; and
• adjustments related to the above items for unconsolidated entities in the application of equity accounting.
We believe that MFFO is helpful in assisting management and investors with the assessment of the sustainability of operating performance in future periods and, in
particular, after our acquisition stage is complete, because MFFO excludes acquisition expenses that affect operations only in the period in which the property is acquired.
Thus, MFFO provides helpful information relevant to evaluating our operating performance in periods in which there is no acquisition activity.
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Reconciliation of Non-GAAP Financials
Many of the adjustments in arriving at MFFO are not applicable to us. Nevertheless, as explained below, management’s evaluation of our operating performance may also exclude items
considered in the calculation of MFFO based on the following economic considerations.
• Adjustments for straight-line rents and amortization of discounts and premiums on debt investments-GAAP requires rental receipts and discounts and premiums on debt
investments to be recognized using various systematic methodologies. This may result in income recognition that could be significantly different than underlying contract terms.
By adjusting for these items, MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments and aligns results with
management’s analysis of operating performance. The adjustment to MFFO for straight-line rents, in particular, is made to reflect rent and lease payments from a GAAP accrual
basis to a cash basis.
• Adjustments for amortization of above- or below-market intangible lease assets-Similar to depreciation and amortization of other real estate-related assets that are excluded from
FFO, GAAP implicitly assumes that the value of intangibles diminishes ratably over the lease term and should be recognized in revenue. Since real estate values and market
lease rates in the aggregate have historically risen or fallen with market conditions, and the intangible value is not adjusted to reflect these changes, management believes that by
excluding these charges, MFFO provides useful supplemental information on the performance of the real estate.
• Gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting-This item relates to a fair value adjustment, which is based on the impact of
current market fluctuations and underlying assessments of general market conditions and specific performance of the holding, which may not be directly attributable to current
operating performance. As these gains or losses relate to underlying long-term assets and liabilities, management believes MFFO provides useful supplemental information by
focusing on the changes in core operating fundamentals rather than changes that may reflect anticipated, but unknown, gains or losses.
• Adjustment for gains or losses related to early extinguishment of derivatives and debt instruments-Similar to extraordinary items excluded from FFO, these adjustments are not
related to continuing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be
more comparable between other reporting periods and to other real estate operators.
Neither FFO nor MFFO should be considered as an alternative to net income (loss) or income (loss) from continuing operations under GAAP, nor as an indication of our liquidity, nor is
either of these measures indicative of funds available to fund our cash needs, including our ability to fund distributions. MFFO may not be a useful measure of the impact of long-term
operating performance on value if we do not continue to operate our business plan in the manner currently contemplated.
Accordingly, FFO and MFFO should be reviewed in connection with other GAAP measurements. FFO and MFFO should not be viewed as more prominent measures of performance than
our net income or cash flows from operations prepared in accordance with GAAP. Our FFO and MFFO as presented may not be comparable to amounts calculated by other REITs. The
following section presents our calculation of FFO and MFFO and provides additional information related to our operations.
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Reconciliation of Non-GAAP Financials
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per share amounts) 2016 2015 2016 2015
Calculation of FFO
Net income (loss) $ 48 $ (2,128) $ (3,153) $ (3,472)
Adjustments:
Depreciation and amortization of real estate assets 14,933 7,157 41,045 16,619
Gain on contribution of properties to unconsolidated joint venture — — (3,341) —
Depreciation and amortization related to unconsolidated joint venture 193 — 426 —
FFO $ 15,174 $ 5,029 $ 34,977 $ 13,147
Calculation of MFFO
FFO $ 15,174 $ 5,029 $ 34,977 $ 13,147
Adjustments:
Acquisition expenses 579 4,160 8,570 7,831
Net amortization of above- and below-market leases (589) (303) (1,547) (778)
Write-off of unamortized deferred financing fees (53) — (53) —
Straight-line rental income (452) (646) (2,199) (1,282)
Amortization of market debt adjustment (268) (256) (608) (578)
Change in fair value of derivatives (217) — (317) —
Adjustments related to unconsolidated joint venture 29 — 48 —
MFFO $ 14,203 $ 7,984 $ 38,871 $ 18,340
Weighted-average common shares outstanding - basic and diluted 46,219 41,387 46,168 33,526
Net income (loss) per share - basic and diluted $ — $ (0.05) $ (0.07) $ (0.10)
FFO per share - basic and diluted $ 0.33 $ 0.12 $ 0.76 $ 0.39
MFFO per share - basic and diluted $ 0.31 $ 0.19 $ 0.84 $ 0.55
The Grocery REITPhillips Edison-ARC
Grocery Center REIT II
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Thank You
www.grocerycenterREIT2.com
DST: 888.518.8073
Griffin Capital Securities: 866.788.8614